Heterodox Edmund Strother Phelps (born July 26, 1933) is an American economist and the recipient of the 2006 Nobel Memorial Prize in Economic Sciences.

His most seminal work inserted a microfoundation, one featuring imperfect information, incomplete knowledge and expectations about wages and prices, to support a macroeconomic theory of employment determination and price-wage dynamics.

[citation needed] As part of his research, in 1961 Phelps published a famous paper[2][3] on the Golden Rule savings rate, one of his major contributions to economic science.

During the 1962–63 academic year, Phelps visited MIT, where he was in contact with future Nobel Prize winners Paul Samuelson, Robert Solow and Franco Modigliani.

At Penn, Phelps's research focused mainly on the link between employment, wage setting and inflation, leading to his influential 1968 paper "Money-Wage Dynamics and Labor Market Equilibrium"[4] and others.

That, if accurate, would have the crucial implication that the Keynesian policy of demand management has only transitory effects and so cannot be used to control the long-term rate of unemployment in the economy.

In the following years, an element in Phelps's foundations came under heavy criticism with the introduction of John Muth's rational expectations, which was popularized by future Nobel prize winner Robert Lucas, Jr. Phelps, with Calvo and John Taylor, started a program to rebuild Keynesian economics with rational expectations by employing sticky wages and prices.

They did so by explicitly incorporating in models the fact that wage contracts are set in advance for multiple periods, an idea originating from Phelps's 1968 paper.

This research lead to a paper published with Taylor in 1977,[9] proving that staggered wage setting gives monetary policy a role in stabilizing economic fluctuations.

Discussions with fellow Nobel prize winners Amartya Sen and Kenneth Arrow and especially the influence of the philosophy of John Rawls, whom he met during the year at the Center, led Phelps to undertake some research outside macroeconomics.

[15] In the 1980s, Phelps increased collaboration with European universities and institutions, including Banca d'Italia, where he spent most of his 1985–86 sabbatical, and Observatoire Français des Conjonctures Économiques (OFCE) in Paris.

He became interested in the puzzle of the persistent high unemployment in Europe despite no pause in inflation and published on the subject with Jean-Paul Fitoussi (the director of OFCE).

Phelps also collaborated closely with Luigi Paganetto at the University of Rome Tor Vergata and, between 1988 and 1998, as co-organizers of the Villa Mondragone International Seminar.

From his work at EBRD and collaboration with his former student, Roman Frydman, Phelps developed a strong interest in Eastern Europe's transition economies.

Phelps's current work is about the benefits and sources of a country's structural dynamism: the enterprise and creativity of entrepreneurs, the skill of financiers in selecting and supporting the best projects, and the knowledge managers draw upon in evaluating and making use of new methods and products.

For Phelps, the challenges presented in a creative and evolving business sector provide most people with their main vehicle for the exploration, exercise, and development of their talents.

Phelps's own research on dynamism began at the European Bank for Reconstruction and Development in 1990 and 1992–93, where he worked on the theory of capitalism and issues of mass privatization in Eastern Europe.

In 2008, writing in the wake of the Great Recession, Phelps criticized the "false" models of neoclassical economics, but he also wrote with skepticism regarding Keynesian resurgence:[21] What theory can we use to get us out of the impending slump quickly and reliably?

Yet his employment theory was problematic and the "Keynesian" policy solutions are questionable at best... At the end of his life, Keynes wrote of "modernist stuff, gone wrong and turned sour and silly".

The admiration we all have for Keynes's fabulous contributions should not sway us from moving on.Since around 2006, his main research focus has been innovation and economic growth as fueled by the creativity of ordinary people within a nation.

His book Mass Flourishing (2013) remarks that cavemen had the ability to imagine new things and the zeal to create them, but a culture liberating and inspiring dynamism is necessary to ignite what Lincoln called a "passion for the new.

In announcing the prize, the Royal Swedish Academy of Sciences said Phelps's work had "deepened our understanding of the relation between short-run and long-run effects of economic policy.